Importation of second-hand vehicle models that can be assembled locally is set to come to an end in a drastic policy shift.
The move is intended to boost Kenyan manufacturers but will hurt importers.
The Ministry of Industry and Trade has in an updated draft National Automotive Policy proposed a ban on import of vehicles and spare parts where Original Equipment Manufacturers already have a local presence.
The policy shift is intended to create jobs in local car assembly plants that are currently operating at only 16 percent capacity, producing an estimated 5,000 vehicles per annum against installed capacity of 34,000 cars.
The proposal could, however, prove controversial for Kenya’s middle class, who in most cases buy the relatively cheaper second-hand imports as their first car.
Official data shows that Kenya imports an average of 7,600 vehicles per month, which translates into nearly 100,000 cars per annum.
The draft automotive policy, which is in the process of being developed into law, has previously also proposed an age limitation for imported second-hand cars from eight to five years in what is expected to trigger a steep increase in prices and taxes payable on the units.
The ministry says the ban on import of models that can be locally will trigger production of sufficient volumes and benefit buyers who will enjoy economies of scale.
“Additional tax will be charged on any models outside the rationalized list,” says the draft policy, while holding that there will be “a consultative and open process to develop criteria to determine the models of motor vehicles to be used in the country.”
Locally assembled vehicles in Kenya currently include the Volkswagen Polo, Peugeot, Mobius, Nissan trucks, Hino trucks and buses, HB trucks, Hyundai trucks, Ashok Leyland trucks, MAN trucks and buses, trailers and semi-trailers among others.
Kenya Auto Bazaar Association Secretary-General Charles Munyori said the draft automotive policy “smells of protectionism that should not be happening at this point in our economic history.
Market forces should be allowed to play out and consumers should not be penalised for exercising their choice,” he argued.
Industry and Trade Secretary Peter Munya in an interview, however, said the proposal gives incentives for the local motor vehicle industry to grow.
He said the exclusion of some models from the imports list has been done in other countries such as South Africa where vehicle manufacturing has taken off.
“It is the way to go because you need to build demand to attract investors in the capital-intensive vehicle manufacturing sector.
Choice is always limited, sometimes even by availability. As the economy grows, you can expand the list of approved models,” said Mr Munya.
Kenya’s motor vehicle industry’s growth hit its peak in the 1980s by which time the country boasted of three major assembly plants producing about 13,000 vehicles and a relatively vibrant parts manufacturing subsector, according to the government policy paper.
In 1987, there was an attempt to produce the ‘Nyayo Car’, which however came a cropper.
The economic liberalisation and resulting importation of cheap used vehicles in the early 1990s set the industry on a downward spiral.
Rita Kavashe, the chairperson Kenya Motor Vehicle Industry Association (KMI) and chief executive of Isuzu East Africa, said mass local production of new vehicles would provide sufficient numbers to sustain related local content supply industry and boost overall economic growth.
“The country would develop standards for the vehicles to be produced locally,” she said, regarding concerns over quality of locally assembled cars.
Local vehicle assemblers are also set for more incentives under the new policy, such as access to preferences and reservation in public sector procurement.
“To set the industry on long-term growth path therefore, the above outlined measures are expected to be implemented within a period of 12 years,” says the draft policy.
Used vehicle dealers argue that the proposed changes will punish the majority of buyers and second-hand car dealers and benefit only a few new vehicle assemblers and dealers.